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Comcast Forces Disney, Fox to Decide How Much Sky Is Worth

(Bloomberg) -- Comcast Corp. kicked off a bidding war for Sky Plc by formalizing its 21.5 billion pound ($30 billion) offer for Britain’s largest pay-TV company, throwing down the gauntlet to Rupert Murdoch’s 21st Century Fox Inc. and Walt Disney Co.

Comcast’s all-cash offer of 12.50 pounds a share followed its proposal on Feb. 27 at the same price, 16 percent above Fox’s 10.75 pound-per-share bid for Sky. The morning announcement by Philadelphia-based Comcast spurred a series of rapid-fire responses. Minutes later, Fox said it’s committed to its own Sky bid and is considering options. Within the hour, Sky’s independent directors had pulled their recommendation for the Fox bid and welcomed Comcast’s.

Fox and Disney are now forced to respond, two months after America’s largest cable company threatened to disrupt Murdoch’s second attempt at full ownership of the U.K. broadcaster he founded. Fox, which already has a 39 percent stake in Sky, plans to sell the broadcaster to Disney as part of their $52.4 billion merger announced in December.

Disney Chief Executive Officer Bob Iger, who called Sky a “crown jewel” when his company announced its offer for Fox in December, now needs to decide how badly he wants to outdo Comcast for Sky and back a higher bid from Fox. The contest pits Iger against Comcast CEO Brian Roberts, after Disney won over Comcast in an earlier battle for Fox.

“It’s really a question of: How much do they want it?” said Sarah Simon, a media analyst at Berenberg. “Bob Iger has to decide how much he’s prepared to pay. Disney can obviously afford it.”

Shares Rise

Comcast increased 2.2 percent to $34.07 at 10:01 a.m. in New York trading, bolstered by solid first-quarter results from its U.S. internet operations. Even as it vies to acquire Britain’s largest pay-TV broadcaster, Comcast is relying more on broadband and less on video in its home country.

Sky’s shares rose 3.9 percent to 13.58 pounds in London, as investors bet on a bidding war. The stock has been trading above the Comcast offer price since the company indicated its interest in late February. Some Sky shareholders were quick to reiterate calls for higher bids.

“We believe that the bidding for Sky should end up with value for shareholders in excess of 15 pounds a share,” said Bechara Nasr, a portfolio manager at Polygon Global Partners LLP, which owns less than 1 percent of Sky’s shares.

Regulatory Review

Comcast’s formal offer comes days before a May 1 deadline for U.K. competition regulators to present their final assessment of Fox’s Sky bid to Culture Secretary Matt Hancock, who needs to make a decision by mid-June.

Fox has faced a drawn-out review since making the bid for Sky in December 2016 tied to concerns that Murdoch, who owns several U.K. newspapers, would gain too much control over the country’s media.

Fox has made multiple attempts to satisfy regulators, including by proposing to sell Sky News directly to Disney upon buying Sky. A phone-hacking scandal at Murdoch’s newspapers derailed his first bid for the company in 2011.

Already facing potentially fewer regulatory hurdles in the U.K. due to its limited operations in the country, Comcast on Wednesday strengthened its case and made commitments similar to those proposed by Fox. Comcast said it would establish a separate board for Sky News and guarantee a decade of spending at equal levels to last year’s. Roberts said Comcast’s bid shouldn’t trigger a U.K. regulatory review.

“Our belief is it’s not required,” Roberts said on a call with reporters. “We’re hopeful we’ll get a timely resolution so the shareholders can get this superior proposal.”

In the interests of transparency, Comcast should be treated the same as Fox and face regulatory scrutiny, said David Puttnam, a lawmaker in the U.K.’s House of Lords who was influential in shaping the regulatory framework for media mergers.

Comcast Strategy

The formal Sky bid came alongside first-quarter results for Comcast, including a steeper-than-expected decline in cable-TV customers. The company lost 96,000 video subscribers, compared with an estimate for a 60,800 drop.

The numbers underscore a strategy shift in the U.S. away from cable-TV viewers and toward the sale of broadband service. Comcast added 379,000 high-speed internet customers last quarter, helping fuel an overall revenue gain of 11 percent to $22.8 billion -- in line with estimates. Excluding some items, earnings amounted to 62 cents a share, beating the 59-cent estimate.

Acquiring Sky would boost Comcast’s ability to invest in programming and innovation, and would significantly expand its international footprint, the company said. About a quarter of Comcast’s sales would come from overseas after a successful acquisition of Sky, compared with 9 percent currently.